Gatorade Organic 'Might've Been Too Little Too Late' -- Update

PepsiCo Inc.'s Gatorade, a sideline staple for fatigued athletes that has long dominated the sports-drink market, needs a pick-me-up of its own.

Known for neon-colored, sugar-loaded flavors such as "Arctic Blitz," Gatorade has been losing ground as consumers gulp record amounts of bottled water and spend more on enhanced waters, teas and energy drinks.

Gatorade sales in the U.S. slipped 0.5% to $5.9 billion in 2017, marking the beverage's first decline since 2012, according to research firm Euromonitor International. The drink still commands about three-quarters of the U.S. sports-drink market, according to Euromonitor, though its share slipped last year.

"It's definitely been a challenging year for sports drinks," said Howard Telford, head of Euromonitor's soft-drinks research. And with consumers favoring healthier-seeming options, he said, "I'm not sure whether Gatorade would be the first thing they'd reach for."

Gatorade, which has about half as much sugar per ounce as cola, is part of a larger conundrum for soda giants PepsiCo and Coca-Cola Co., which are trying to appeal to changing consumer tastes while preserving their biggest brands. Soda volumes have been falling as consumers shift away from sugary drinks. This month, Coca-Cola added four new flavors to its slumping Diet Coke lineup.

PepsiCo also is facing increased competition in the sports-drink market, including from the celebrity-driven upstart BodyArmor, which is a distant third but has been gaining market share.

Gatorade said it isn't concerned. "While several competitors have entered the space, our relationship, consumption and connection to our core target, athletes, has simply never been stronger than it is today," the company said in a statement.

PepsiCo Chief Executive Indra Nooyi tried to assure investors in October that the company was taking action to address the Gatorade sales decline, which she said was temporary and mainly due to a cooler-than-expected summer and slowed convenience-store sales.

"We're all over it," Ms. Nooyi said on the October call, without elaborating. Gatorade accounted for about 20% of the company's North American drink volume in the most recent quarter. Gatorade said in its statement the decline came after two years of "terrific" growth in the same quarter. "As we said then, this is a temporary issue and we have already taken action to improve our performance."

The company bought Gatorade in 2001 as part of its $13.8 billion purchase of Quaker Oats Co. The drink, developed in 1965 by University of Florida researchers to replenish electrolytes and fluid lost through sweat, has dominated the sports-drink market. It closest rival, Coca-Cola's Powerade, has just 18% of the market. Powerade sales last year were flat compared with 2016.

Over the years, PepsiCo has experimented with expanding Gatorade, with mixed results. It released a lower-calorie version, G2, in 2007. In 2010, it rolled out the G Series, which included pregame and postgame formulations. It has added protein bars, powders and energy chews.

Most recently, PepsiCo introduced an organic version of the drink. Gatorade Organic, made with organic cane sugar and free of artificial coloring, comes in bottles wrapped with plastic that conceal the drink's lack of color.

Retail sales of Gatorade Organic have totaled about $20 million since the product's launch in late summer 2016, according to market research firm Nielsen. Sales of all Gatorade drinks amounted to $7 billion over the same period.

"I'm not concerned about artificial dyes," said Tanner Bernhard, a 23-year-old marketer in Waterloo, Iowa, who drinks a bottle of regular Glacier Freeze Gatorade every morning at work. "I'm just looking for something that tastes good and quenches my thirst."

Some retailers, including a Duane Reade drugstore in New York City, have dropped prices for the organic version, which usually commands a premium, so it costs less per ounce than regular Gatorade.

A spokeswoman for Walgreens Boots Alliance Inc., which operates 8,000 stores in the U.S., including Duane Reade stores, said very few of its locations have ever carried Gatorade Organic and declined to say how many had similar promotions.

Gatorade Organic is a "valiant" effort by PepsiCo to give sports drinks a healthier reputation, said Ali Dibadj, a consumer-goods analyst with Bernstein. But "it might've been too little, too late. You clearly see the growth rate and market share has stalled."

Both Gatorade and Coca-Cola's Powerade have been losing market share to BodyArmor, a relative newcomer that advertises itself as a natural alternative to Gatorade because it doesn't use artificial coloring.

Sales of BodyArmor, whose backers include former Los Angeles Laker Kobe Bryant and the Dr Pepper Snapple Group Inc., nearly doubled to $235 million last year but still accounted for just 3% of the U.S. market, according to Euromonitor.

Mike Kneuer, a 35-year-old fitness and nutrition coach in Boca Raton, Fla., recently scolded a client who showed up to the gym with a bottle of Gatorade Organic. Whether organic or not, he said, most sports drinks have as much sugar as a Snickers candy bar.